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Thursday, 14 January 2010
Dubai foreclosure may open floodgates
Dubai’s housing rout sent prices down 52 per cent in the past year, prompting some homeowners to abandon their cars and mortgage payments and flee the country. Not one received a foreclosure notice. Until now.
Dubai’s housing rout sent prices down 52 per cent in the past year, prompting some homeowners to abandon their cars and mortgage payments and flee the country. Not one received a foreclosure notice. Until now.
Barclays won the sheikhdom’s first foreclosure cases in court, clearing the way for lenders holding about US$16 billion of Dubai home loans to take action when borrowers do not pay. Islamic lender Tamweel PJSC, the emirate’s biggest mortgage bank, has several of its own foreclosure claims pending and estimates 3per cent of its mortgages are in default.
“Banks will be more aggressive in pursuing legal action if they see the process is efficient,” said Antoine Yacoub, a banking analyst at Moody’s Investors Service. “They were trying to avoid the courts and restructure most of their loans, but once they see a precedent has been set, they will be encouraged to push cases through.”
The successful foreclosures by Barclays may open the floodgates in Dubai’s property market, which went from the world’s best in 2008 to the worst after credit dried up and speculators who had fuelled price increases left the market, according to Deutsche Bank. Moody’s estimated in September that 12 per cent of the 27,000 residential mortgages would default within 12 to 18 months.
Banks and developers until now have avoided the process of reclaiming homes through the courts, barred by tradition and an arcane legal process. The Barclays and Tamweel cases may change that, because they show that a 2008 mortgage law - setting out rules for default, foreclosure and repossession - is working.
The law requires lenders to give homeowners a 30-day notice of their intent to pursue a foreclosure, said Jody Waugh, a partner at law firm Al Tamimi & Co. Courts then review the case and can issue a debt judgment that turns the property over to Dubai’s Land Department for auction.
Barclays, Britain’s second-largest bank, said it won the foreclosure orders without providing details of the cases.
The ruling shows that Dubai’s market is “evolving and is poised to come at par with other mature markets of the world,” the bank said.
Both lenders and developers in the United Arab Emirates have tried to stem rising defaults through out-of-court settlements with distressed customers after falling prices left buyers with mortgages worth more than their properties. That has helped minimise the amount of bad debt on their balance sheets and kept repossessed houses off a market that already has too much supply. Provisions for bad loans in the UAE surged 68 per cent to 32 billion dirhams (HK$67.55 billion) as of November, compared with a year earlier.
Before the mortgage law was passed, lenders and builders could resort to the courts to enforce contracts, though they did not have the right to foreclose.
Tamweel’s pending cases involve homes abandoned by owners who left Dubai at the onset of the global financial crisis, chief executive Wasim Saifi said. Tamweel’s default rate has been “hovering between 2.5 per cent and 4 per cent for the past six months,” he said.
As alternatives to foreclosures, lenders in Dubai have extended payment periods and developers allowed customers with several properties to return some of them. The absence of mortgage securitization makes it easier for lenders to restructure loans than their counterparts in the United States, where mortgage debt was often sold on to investors.
Standard Chartered and HSBC Holdings (SEHK: 0005, announcements, news) top the list of foreign banks providing mortgages in the UAE, according to Deepak Tolani, senior research associate at Al Mal Capital.
Banks are unlikely to head to the courts to foreclose on properties en masse because of concerns that large numbers of repossessed properties on the market will drive prices lower, said Saud Masud, an analyst at UBS.
While auctioning a few properties “will be easy,” hundreds or even thousands of foreclosure sales may draw buyers away from new and second-hand properties, Masud said.
“It’s a slippery slope,” Masud said. “Mass auctions may reprice the property market in a meaningful way as investors prefer to pick real bargains in auctions.”
2 comments:
Dubai foreclosure may open floodgates
Court clears way for action on US$16b in loans
Bloomberg in Dubai
12 January 2010
Dubai’s housing rout sent prices down 52 per cent in the past year, prompting some homeowners to abandon their cars and mortgage payments and flee the country. Not one received a foreclosure notice. Until now.
Barclays won the sheikhdom’s first foreclosure cases in court, clearing the way for lenders holding about US$16 billion of Dubai home loans to take action when borrowers do not pay. Islamic lender Tamweel PJSC, the emirate’s biggest mortgage bank, has several of its own foreclosure claims pending and estimates 3per cent of its mortgages are in default.
“Banks will be more aggressive in pursuing legal action if they see the process is efficient,” said Antoine Yacoub, a banking analyst at Moody’s Investors Service. “They were trying to avoid the courts and restructure most of their loans, but once they see a precedent has been set, they will be encouraged to push cases through.”
The successful foreclosures by Barclays may open the floodgates in Dubai’s property market, which went from the world’s best in 2008 to the worst after credit dried up and speculators who had fuelled price increases left the market, according to Deutsche Bank. Moody’s estimated in September that 12 per cent of the 27,000 residential mortgages would default within 12 to 18 months.
Banks and developers until now have avoided the process of reclaiming homes through the courts, barred by tradition and an arcane legal process. The Barclays and Tamweel cases may change that, because they show that a 2008 mortgage law - setting out rules for default, foreclosure and repossession - is working.
The law requires lenders to give homeowners a 30-day notice of their intent to pursue a foreclosure, said Jody Waugh, a partner at law firm Al Tamimi & Co. Courts then review the case and can issue a debt judgment that turns the property over to Dubai’s Land Department for auction.
Barclays, Britain’s second-largest bank, said it won the foreclosure orders without providing details of the cases.
The ruling shows that Dubai’s market is “evolving and is poised to come at par with other mature markets of the world,” the bank said.
Both lenders and developers in the United Arab Emirates have tried to stem rising defaults through out-of-court settlements with distressed customers after falling prices left buyers with mortgages worth more than their properties. That has helped minimise the amount of bad debt on their balance sheets and kept repossessed houses off a market that already has too much supply. Provisions for bad loans in the UAE surged 68 per cent to 32 billion dirhams (HK$67.55 billion) as of November, compared with a year earlier.
Before the mortgage law was passed, lenders and builders could resort to the courts to enforce contracts, though they did not have the right to foreclose.
Tamweel’s pending cases involve homes abandoned by owners who left Dubai at the onset of the global financial crisis, chief executive Wasim Saifi said. Tamweel’s default rate has been “hovering between 2.5 per cent and 4 per cent for the past six months,” he said.
As alternatives to foreclosures, lenders in Dubai have extended payment periods and developers allowed customers with several properties to return some of them. The absence of mortgage securitization makes it easier for lenders to restructure loans than their counterparts in the United States, where mortgage debt was often sold on to investors.
Standard Chartered and HSBC Holdings (SEHK: 0005, announcements, news) top the list of foreign banks providing mortgages in the UAE, according to Deepak Tolani, senior research associate at Al Mal Capital.
Banks are unlikely to head to the courts to foreclose on properties en masse because of concerns that large numbers of repossessed properties on the market will drive prices lower, said Saud Masud, an analyst at UBS.
While auctioning a few properties “will be easy,” hundreds or even thousands of foreclosure sales may draw buyers away from new and second-hand properties, Masud said.
“It’s a slippery slope,” Masud said. “Mass auctions may reprice the property market in a meaningful way as investors prefer to pick real bargains in auctions.”
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